In case of change in profit sharing ratio among partners in a firm, the Stock Account stood at ₹55,000 in the Balance Sheet of the old firm and at the time of reconstitution, it was observed that Stock A/c was overvalued by 10% (that is, its book value was 10% more than its true value). Identify the correct option with respect to treatment of stock account in Revaluation Account.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Stock A/c will be credited by ₹5,000
Book value of stock = ₹55,000, which is 110% of its true value.
True value = ₹55,000 × 100/110 = ₹50,000
Fall in value = ₹55,000 − ₹50,000 = ₹5,000
A fall in an asset is a loss: Revaluation A/c Dr. ₹5,000, To Stock A/c ₹5,000. So Stock A/c is credited by ₹5,000.
NCERT (2026-27 edition):
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